Will area real estate prices climb to boom time peak?

If the housing market continues at its current rate of appreciation — a combination of strong demand from buyers and dwindling supply of homes for sale — prices could be back to their boom-time peak within seven years, according to a new analysis of data by the Herald-Tribune.

Published: Sunday, April 21, 2013 at 4:28 p.m.

Last Modified: Sunday, April 21, 2013 at 4:28 p.m.

With the price of residential real estate quickly rising, a sequel to the days when Southwest Florida's home values reached historic heights may not be that far away.

If the housing market continues at its current rate of appreciation — a combination of strong demand from buyers and dwindling supply of homes for sale — prices could be back to their boom-time peak within seven years, according to a new analysis of data by the Herald-Tribune.

But market watchers are split about whether the volatile market — now driven by baby boomers and institutional investors snapping up foreclosures — can sustain its current trajectory.

"Prices are definitely going up everywhere right now," said Shannon Moore, broker and owner of Green Lion Realty in North Port, who represents foreclosure investors. "I see that continuing for at least the next three years."

This rise in values has been fanned by sales that in February rose to a pace of 983 existing single-family homes in Sarasota, Manatee and Charlotte counties.

That was a 9 percent increase from January and an 11 percent jump from the same month a year ago.

The recent experience in the market has allowed sellers to raise the price tags on their listings and banks to leave their foreclosure auctions with stronger returns.

Surges and dips

In Sarasota County alone, median home prices grew an average of $22,767 during the past three months when compared with the same period last year.

At that pace, the county's median sales price of $184,500 in February would climb back to its level in eight years ago by 2020, according to a Herald-Tribune review of Realtor data.

In Manatee, the $180,000 February median would pass its boom-time values by 2021, using the same equation to project values.

Charlotte County, hit hardest by the crash and slower to recover, would not see its $116,000 February median reach boom-time levels until after 2022, the Herald-Tribune analysis shows.

To be sure, it is unlikely that the market will continue growing at this exact pace. There will be surges and dips that are bound to detour growth.

The Herald-Tribune's methodology also is limited, too, because not all real estate sales in a given month include similar properties.

But anything approaching such a recovery in pricing is one that most in the industry would have scoffed at just a year ago.

"We still have a long way to go to get back to these numbers," said Peter Crowley, broker and co-owner of Re/Max Alliance Group in Sarasota and Manatee. "We will continue to see moderate appreciation for the foreseeable future, but it will be a sustainable pace that's healthier for real estate markets."

Distressed inventory

Several speed bumps stand in the way.

The first is an estimated shadow inventory of 11,102 foreclosures expected to hit Southwest Florida's housing market during the next few years, according to RealtyTrac Inc., which tracks the distressed property phenomenon.

Along with a sharp uptick in new home building activity, many experts expect those foreclosure properties to ease the tight supply before housing prices get out of control.

If prices do hold up long enough to restore equity to pre-boom-time values — or even come close — it could trigger a rush of new listings from borrowers who had been stuck in an underwater home for nearly a decade, other market experts predict.

Just as a tight market has bolstered pricing, too large a supply could push them lower.

To some, there also are questions about how long the market's ferocious demand can last.

"We still have a lot of distressed inventory, and furthermore, at some point the national economy has to begin wresting with the debt service," said Dennis Black, a real estate consultant in Port Charlotte. "The price increase we have been seeing, particularly from the Wall Street funds, is speculation at its highest level."

Investor-driven

At the heart of the price increases is a demand for real estate in Southwest Florida only rivaled by the boom years of 2003 to 2005.

The more recent buying surge has been led largely by baby boomers, who had put their Southwest Florida retirement on ice for several years to wait out the Great Recession.

They are again trekking to Florida, feeling empowered to buy through gains made on Wall Street and improved values for the northern homes they have finally been able to sell for a reasonable return.

But by far the biggest driver of Southwest Florida's recent real estate appreciation has been institutional investors — like New York powerhouse Blackstone Group and Colony Financial — which have been buying foreclosures by the score for use as rentals.

Because those companies are paying as much as 45 percent more for their purchases than the homes are worth — as determined by appraisers through comparable properties in those neighborhoods — these recent foreclosure-buying sprees are forcing some smaller investors and other homeowners to overpay for their purchases.

Those inflated purchases will now become the new standard for real estate "comparables" used by appraisers — leaving values that are much higher than market conditions would otherwise merit, said Jack McCabe, a real estate consultant in Deerfield Beach.

"We're going to go through the whole thing we did last decade all over again," McCabe said. "Except, while last time it was the flippers and speculators pushing the market up, now it's these hedge funds."

McCabe said he expects the institutional investors will continue to artificially boost prices in Southwest Florida for three more years, at which point he predicts the Federal Reserve will begin to loosen the cap on interest rates, prompting those companies to then sell off their rental homes.

By that point, prices will be so high, buyers could be once again forced to take out an adjustable rate mortgage for their deals, McCabe said.

In that worst-case scenario there could be the makings of another foreclosure crisis, McCabe contends, with buyers overextending themselves to grab a piece of the real estate frenzy. If his vision holds true, prices would then fall.

But others are more sanguine about the industry's future, noting that lending requirements are still extremely tight and many buyers are still coming to the closing table with cash.

"Prices are creeping up a little everywhere, but it's not at an alarming rate," said Ron Cornette, Wagner Realty's marketing director. "Short sales and foreclosures are still easing things a little, and I just don't think we're going to get back to 2004 or 2005 anytime soon."

<p>With the price of residential real estate quickly rising, a sequel to the days when Southwest Florida's home values reached historic heights may not be that far away.</p><p>If the housing market continues at its current rate of appreciation — a combination of strong demand from buyers and dwindling supply of homes for sale — prices could be back to their boom-time peak within seven years, according to a new analysis of data by the Herald-Tribune.</p><p>But market watchers are split about whether the volatile market — now driven by baby boomers and institutional investors snapping up foreclosures — can sustain its current trajectory.</p><p>"Prices are definitely going up everywhere right now," said Shannon Moore, broker and owner of Green Lion Realty in North Port, who represents foreclosure investors. "I see that continuing for at least the next three years."</p><p>This rise in values has been fanned by sales that in February rose to a pace of 983 existing single-family homes in Sarasota, Manatee and Charlotte counties.</p><p>That was a 9 percent increase from January and an 11 percent jump from the same month a year ago.</p><p>The recent experience in the market has allowed sellers to raise the price tags on their listings and banks to leave their foreclosure auctions with stronger returns.</p><p><b>Surges and dips</b></p><p>In Sarasota County alone, median home prices grew an average of $22,767 during the past three months when compared with the same period last year.</p><p>At that pace, the county's median sales price of $184,500 in February would climb back to its level in eight years ago by 2020, according to a Herald-Tribune review of Realtor data.</p><p>In Manatee, the $180,000 February median would pass its boom-time values by 2021, using the same equation to project values.</p><p>Charlotte County, hit hardest by the crash and slower to recover, would not see its $116,000 February median reach boom-time levels until after 2022, the Herald-Tribune analysis shows.</p><p>To be sure, it is unlikely that the market will continue growing at this exact pace. There will be surges and dips that are bound to detour growth.</p><p>The Herald-Tribune's methodology also is limited, too, because not all real estate sales in a given month include similar properties.</p><p>But anything approaching such a recovery in pricing is one that most in the industry would have scoffed at just a year ago.</p><p>"We still have a long way to go to get back to these numbers," said Peter Crowley, broker and co-owner of Re/Max Alliance Group in Sarasota and Manatee. "We will continue to see moderate appreciation for the foreseeable future, but it will be a sustainable pace that's healthier for real estate markets."</p><p><b>Distressed inventory</b></p><p>Several speed bumps stand in the way.</p><p>The first is an estimated shadow inventory of 11,102 foreclosures expected to hit Southwest Florida's housing market during the next few years, according to RealtyTrac Inc., which tracks the distressed property phenomenon.</p><p>Along with a sharp uptick in new home building activity, many experts expect those foreclosure properties to ease the tight supply before housing prices get out of control.</p><p>If prices do hold up long enough to restore equity to pre-boom-time values — or even come close — it could trigger a rush of new listings from borrowers who had been stuck in an underwater home for nearly a decade, other market experts predict.</p><p>Just as a tight market has bolstered pricing, too large a supply could push them lower.</p><p>To some, there also are questions about how long the market's ferocious demand can last.</p><p>"We still have a lot of distressed inventory, and furthermore, at some point the national economy has to begin wresting with the debt service," said Dennis Black, a real estate consultant in Port Charlotte. "The price increase we have been seeing, particularly from the Wall Street funds, is speculation at its highest level."</p><p><b>Investor-driven</b></p><p>At the heart of the price increases is a demand for real estate in Southwest Florida only rivaled by the boom years of 2003 to 2005.</p><p>The more recent buying surge has been led largely by baby boomers, who had put their Southwest Florida retirement on ice for several years to wait out the Great Recession.</p><p>They are again trekking to Florida, feeling empowered to buy through gains made on Wall Street and improved values for the northern homes they have finally been able to sell for a reasonable return.</p><p>But by far the biggest driver of Southwest Florida's recent real estate appreciation has been institutional investors — like New York powerhouse Blackstone Group and Colony Financial — which have been buying foreclosures by the score for use as rentals.</p><p>Because those companies are paying as much as 45 percent more for their purchases than the homes are worth — as determined by appraisers through comparable properties in those neighborhoods — these recent foreclosure-buying sprees are forcing some smaller investors and other homeowners to overpay for their purchases.</p><p>Those inflated purchases will now become the new standard for real estate "comparables" used by appraisers — leaving values that are much higher than market conditions would otherwise merit, said Jack McCabe, a real estate consultant in Deerfield Beach.</p><p>"We're going to go through the whole thing we did last decade all over again," McCabe said. "Except, while last time it was the flippers and speculators pushing the market up, now it's these hedge funds."</p><p>McCabe said he expects the institutional investors will continue to artificially boost prices in Southwest Florida for three more years, at which point he predicts the Federal Reserve will begin to loosen the cap on interest rates, prompting those companies to then sell off their rental homes.</p><p>By that point, prices will be so high, buyers could be once again forced to take out an adjustable rate mortgage for their deals, McCabe said.</p><p>In that worst-case scenario there could be the makings of another foreclosure crisis, McCabe contends, with buyers overextending themselves to grab a piece of the real estate frenzy. If his vision holds true, prices would then fall.</p><p>But others are more sanguine about the industry's future, noting that lending requirements are still extremely tight and many buyers are still coming to the closing table with cash.</p><p>"Prices are creeping up a little everywhere, but it's not at an alarming rate," said Ron Cornette, Wagner Realty's marketing director. "Short sales and foreclosures are still easing things a little, and I just don't think we're going to get back to 2004 or 2005 anytime soon."</p>